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1997 Annual Report

NEW ZEALAND SECURITIES MARKETS
The following is a brief description of the securities markets in which the Commission performs its work. We have used the latest statistics available to us in each market sector.
Equity Securities
The market capitalisation of shares listed on the stock exchange as at 31 March 1997 was $51,677 million compared with $50,253 million as at 31 March 1996, a rise of 3 percent. Figure 1 shows that market capitalisation peaked in January 1997 at $55,251 million which was 10 percent higher than the market capitalisation at the end of March 1996. Market capitalisation increased significantly in the month of June 1996 as a result of the listing of Tranz Rail Holdings shares. The listing of TransAlta New Zealand shares contributed strongly to market capitalisation in September 1996.
Figure: 1
The value of share turnover in the year to 31 March 1997 was $14,642 million, a marginal decline when compared to the equivalent figure of $14,905 million for the previous year. The volume of share turnover in the 12 months to 31 March 1997 was 6,852 million, a 7 percent decline when compared to the equivalent figure of 7,350 million for the previous year.
The value of equity raised in New Zealand from newly listed shares was $245 million in the year to 31 March 1997.
During the financial year 14 listed companies were subject to full takeover offers. Of these ten were cash offers, two scrip offers and two a mix of cash and scrip. In ten cases the offeror secured a 90% holding in the company and proceeded to acquire the remaining shares under the compulsory acquisition provisions prescribed in the New Zealand Stock Exchange Listing Rules.
As at 31 March1997, 187 companies (122 New Zealand and 65 overseas) had their ordinary shares listed on the Exchange, compared with 190 companies (130 New Zealand and 60 overseas) listed at the same time last year. The decline in the number of New Zealand companies listed on the Exchange and the rise in the number of overseas companies indicates a trend apparent since 1995.
The New Zealand Stock Exchange is established by the Sharebrokers Amendment Act 1981. It regulates the conduct of its members and makes its own rules, subject to approval by the Governor General. It makes its own Listing Rules in consultation with the listed companies. It has established a Market Surveillance Panel to regulate listed companies in accordance with the Listing Rules.
Debt Securities
There were 18 registered banks as at 30 June 1997. In addition, there was one application for registered bank status under consideration by the Reserve Bank of New Zealand.
The number of non-bank institutions undertaking business as continuous issuers of debt securities under Commission exemptions were:

finance companies and others 24

building societies 11
stock and station agents 5

commercial bill dealers 2

friendly societies 2

credit unions 110

The New Zealand household sector's aggregate investment in debt securities issued by both bank and non-bank financial (M3) institutions was $44,230 million at end-March 1997 compared with $38,393 million a year earlier. Approximately 94 percent of the household sector's debt investments were placed with registered banks as at 31 March 1997.
The prospectus and trustee provisions of the Securities Act do not apply to the Crown, local authorities, the Reserve Bank of New Zealand, the Housing Corporation of New Zealand and registered banks. From 1 July 1996, registered banks became subject to new disclosure requirements established and administered by the Reserve Bank of New Zealand. They are also subject to the prudential supervision of the Reserve Bank. However, they remain subject to the provisions of the Securities Act and Regulations relating to advertising.

Life Insurance
The value of life insurance products issued as at 31 March 1997 was $10,613 million (compared with $10,316 million a year earlier). Of these products, $7,668 million comprised non-investment linked insurance contracts (for example, term life insurance and income insurance) and $2,945 million comprised investment linked insurance contracts.
The Commission has continued to authorise 34 life insurance companies to market life insurance policies with exemption from the prospectus, trustee and statutory supervisor provisions of the Securities Act. However, this authorisation procedure will be discontinued as of 1 October 1997 when the Securities Amendment Act 1996 comes into force.
Superannuation
The value of total managed funds in retail superannuation schemes as at 31 March 1997 was $4,641 million, while the figure for wholesale superannuation schemes, including employer sponsored schemes, was $8,364 million.
With effect from 1 October 1997, the offer of interests in superannuation schemes to the public will be subject to the provisions of the Securities Act and Regulations about the disclosure of information.
Unit Trusts and Group Investment Funds
The value of net assets under the management of New Zealand retail unit trusts and group investment funds was $4,430 million as at 31 March 1997 ($4,210 million as at 31 March 1996). Of this figure $1,058 million was under management with Life Offices or related companies and $1,024 million was under management with registered banks or related companies.
The total amount of money invested by members of the New Zealand public with Australian unit trust managers was $1,278 million as at 31 December 1996 ($1,302 million as at 31 December 1995).
With effect from 1 October 1997, the offer of interests in New Zealand unit trusts will be subject to the provisions of the Securities Act and Regulations about the disclosure of information.
Futures Contracts
A total of 815,420 futures and options contracts were transacted on the New Zealand Futures & Options Exchange in the year to 31 March 1997. This compares with 678,605 contracts traded in the previous year, a rise of 20 percent.
All shares in New Zealand Futures & Options Exchange Limited are held by the Sydney Futures Exchange. Sydney Futures Exchange Clearing House Limited is responsible for clearing, settling and guaranteeing contracts on the Exchange. The Business Conduct Committee is responsible under the Rules of the Exchange for surveillance and investigation matters. The Exchange conducts night trading to enable overseas and New Zealand investors to trade during the hours when the major futures exchanges around the world are operating.
There were 62 persons as at 30 June 1997 authorised by the Securities Commission as futures dealers. Of this total, 33 persons hold Exchange permits to deal in exchange traded contracts, of which 27 are public brokers (7 New Zealand domiciled and 20 Australian domiciled), 4 are introducing brokers and 2 are principal traders.
Of the remaining 29 authorised futures dealers, 14 substantial fund managers are authorised to deal in futures contracts in relation to the funds they manage and 15 persons are authorised to deal in electricity price futures contracts. These persons are not permit holders of the Exchange or subject to the authority of the Exchange's Business Conduct Committee.
The electricity price futures market is administered by the Electricity Marketing Company Limited. The market has attracted limited support from the electricity industry to date.
International Securities Market
With the increasing internationalisation of securities markets, the Commission places considerable importance on co-operation with securities regulators in overseas jurisdictions. The Commission is a member of the International Organisation of Securities Commissions which comprises 136 regulatory and self-regulatory agencies including representatives of all major securities jurisdictions. The principal programmes of work of the Organisation continue to relate to multi-national disclosure of information including harmonisation of international accounting and audit standards, regulation of secondary securities markets including an examination of the implications of the use of Internet and other electronic networks, regulation of market intermediaries, across-border enforcement and exchange of information, investment management and the supervision of financial conglomerates. These programmes are directly relevant to our work in New Zealand and give an important insight into international best practice and the regulatory policies on which it is based.
During the course of the year the Commission became one of 40 subscribers to the Organisation's Resolution on Basic IOSCO Principles of High Regulatory Standards and Mutual Cooperation and Assistance. This resolution records the commitment of IOSCO members to principles of high regulatory standards and mutual cooperation and assistance. It commits them to examine their respective laws, regulations and procedures and to report to IOSCO on this self-evaluation. It empowers IOSCO to monitor the ability of IOSCO members to obtain information from other jurisdictions, in particular those who are thought to be underregulated or uncooperative.
The Commission is also one of some 62 subscribers to the Organisation's 1986 Rio Declaration which calls on signatories to provide assistance on a reciprocal basis in the gathering of information related to market oversight and protection of investors against fraudulent securities transactions. The Commission confers with a number of these signatories, and other regulators, in the course of market inquiries.
In both June 1996 and April 1997 the Commission was party to a resolution of the members of the Asia Pacific Regional Committee of the Organisation on co-operation in compliance with and enforcement of the rules of securities laws and market practices within the region. The Committee has formed a working group to consider the feasibility of establishing a regional standing group on surveillance. The working group comprises China, Hong Kong, the Philippines, Chinese Taipei and Thailand.

At the April 1997 meeting of the Asia Pacific Regional Committee the Commission agreed to lead a regional study on competition policy and securities market regulation with particular reference to optimum procedures for analysis of the costs and benefits of regulatory programmes and proposals.
During the year the Commission signed Memorandums of Understanding on information sharing and related matters with the United States Commodity Futures Trading Commission, the Hong Kong Securities and Futures Commission, and the Securities and Exchange Commission of the Ministry of Finance for Chinese Taipei. The Commission has previously entered into a similar Memorandum of Understanding with the Australian Securities Commission.
By co-operating with securities regulators in other jurisdictions, including the co-ordinated use of exemption powers, the Commission is better able to facilitate the flow of securities across jurisdictional boundaries and to minimise transaction costs for issuers of securities. The Commission has accordingly approved a number of exemptions for overseas issuers. It has approved an exemption applying to all issuers listed on designated exchanges and incorporated in specified jurisdictions for the offer of overseas listed securities to the public in New Zealand. It facilitates the offering of Australian equities and interests in Australian unit trusts to the public in New Zealand. Similarly the Australian Securities Commission facilitates the offering of New Zealand equities to the public in Australia by the use of equivalent powers of exemption.
Technology Trends
New Zealanders are increasingly turning to the use of ATMs, EFTPOS, telephones and personal computers to manage their personal and business affairs. This has seen a dramatic fall in manual transactions and payments. ATMs provide instant access to cash, while the cheque, as a form of non-cash payment, has increasingly been replaced by EFTPOS, direct debits and telephone transfers. In 1993, 54% of all non-cash payments, whether for consumption or investment purposes, were made by cheque in New Zealand. By 1995 this figure had fallen to 33%. Given this marked change, New Zealand is now a relatively low user of cheques when compared to other developed countries. In 1995, 77% of non-cash payments in the United States and 45% of non-cash payments in France were effected by cheque.
These technology trends are evident in New Zealand securities markets more generally. It has become standard practice in many securities markets to clear transactions by electronic means. For example, all clearing transactions of the New Zealand Futures and Options Exchange are sent to Sydney via electronic means. The introduction in 1991 of the FASTER system of electronic registration has significantly reduced time lags in the settlement of share transactions. In July 1997 the securities of New Zealand incorporated companies listed on the Australian Stock Exchange and held on the Australian register are expected to have the benefit of the CHESS system of electronic transfer. This follows actions by the Commission under the Securities Transfer Act 1991.
Less pervasive, for the moment at least, is the use of electronic means for the offering of securities to the public in New Zealand. However, this can be expected to change. Electronic prospectuses have been used in Australia for the issue of interests in unit trusts. From 1 October 1997, New Zealand issuers will be at liberty to deliver their prospectuses and investment statements to prospective investors by electronic means. Secondary market trading through the use of electronic means, such as the Internet, although a recent development in New Zealand, is expected to increase. Data on the extent of this trading to date is not readily available.
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Securities Commission, New Zealand

12th floor, Reserve Bank Building, 2 The Terrace, PO Box 1179 Wellington, New Zealand

+64 4 472 9830 phone +64 4 472 8076 fax

Inquiries to seccom@seccom.govt.nz